Possible Chinese Bubble Bursting

China has seen credit grow as the country has grown. Some think the credit growth is unsustainable. By one measure, China crossed a particular border when the gap between credit and GDP exceeded 10.

“Any level above 10 suggests that a crisis will occur “in any of the three years ahead”, the BIS said.” – The Guardian

Recent data puts China at 30.1 in the first quarter of 2016, which means it probably exceeded 10 at least a year ago, which means that we’re already into the three year countdown. The metric, however, is based on markets and economies that are more open than China’s. The optimistic perspective suggests China’s controls will control a possibly temporary spike. The pessimistic perspective suggests the measure is valid regardless of the controls in place. One hint that the pessimists may be right is the large outflow of money from China. The world’s economies are dealing with great uncertainty, and this is just one more poorly understood influence.